Mr. Tohru Sasaki, Managing Director and Head of Japan Rates and FX Research, JP Morgan was one of the keynote speakers at the Asia Business Forum, organised by London Business School's Asia Club, on 27 April 2013. He spoke about the economic policies advocated by Japan's Prime Minister and the implication that they have to the Asian economy.
Find out more about the Asia Club:
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Japan's Abenomics and its implication on Asian economy
1. JAPAN'S ABENOMICS AND ITS IMPLICATION ON ASIAN ECONOMY
London Business School, Asia Business Forum 2013, New Balance of Power in Asia
STRICTLY PRIVATE AND CONFIDENTIAL
April 2013
Tohru Sasaki
Head of Japan Rates and FX Research
Global FX Strategy
tohru.sasaki@jpmorgan.com
JPMorgan Chase Bank, N.A.
2. GDP : Percentage share of each country within Asian region
Taiwan
2%
Thailand
2%
Singapore Hong Kong
Philippines
1%
1%
1%
Malaysia
2%
JAPAN'S ABENOMICS AND ITS IMPLICATION ON ASIAN ECONOMY
Indonesia
5%
Korea
6%
China
39%
India
10%
Japan
31%
Source: J.P.Morgan
1
3. Nikkei index
45000
40000
JAPAN'S ABENOMICS AND ITS IMPLICATION ON ASIAN ECONOMY
35000
30000
25000
20000
15000
10000
5000
0
Jan-85
Jan-88
Jan-91
Jan-94
Jan-97
Jan-00
Source: J.P.Morgan
2
Jan-03
Jan-06
Jan-09
Jan-12
4. Japan’s Consumer Price Index (index and percent change over year ago)
106
5%
CPI, 2010=100
104
4%
102
3%
JAPAN'S ABENOMICS AND ITS IMPLICATION ON ASIAN ECONOMY
100
2%
98
96
1%
94
0%
92
-1%
90
CPI, oya
-2%
88
86
Jan-90
-3%
Jan-93
Jan-96
Jan-99
Jan-02
Source: J.P.Morgan
3
Jan-05
Jan-08
Jan-11
5. The Three Arrows in Abenomics
Have BoJ to introduce 2% inflation
targeting
JAPAN'S ABENOMICS AND ITS IMPLICATION ON ASIAN ECONOMY
Bold Monetary Policy
New governor Kuroda announced large
scale purchase of Japanese Government
Bond (JGB)
Mobile & Strategic
Fiscal Policy
Growth Strategy which
stimulates private
sector investment
More than ¥10 trillion of Supplemental
Budget
Detail will be announced in June
4
6. Uncharted monetary policy by Governor Kuroda
1) Changing the target of its monetary policy to the monetary base from the O/N call rate, with the new target being
a ¥60-70 trn increase of the monetary base per year ; double the size in two years.
2) Expanding purchases of long-end JGBs, which includes purchases of 40-year JGBs, while the average maturity
is extended to 7 year from current sub-3 year.
JAPAN'S ABENOMICS AND ITS IMPLICATION ON ASIAN ECONOMY
3) Expanding purchases of ETFs to ¥1 trn/year from the current ¥500 bn, and J-REITs to ¥30bn/year from ¥10bn.
4) Abolishment of the bank note rule.
Monthly purchases of JGBs : ¥3.5 trn (Rinban: ¥1.8 trn, APP: ¥1.7 trn)
¥7.0 trn (monthly issuance is about ¥10.0 trn)
5) Integration of the APP and Rinban operation.
BoJ will buy 6-10yr sector of JGB at the tune of ¥3.4 trn/month, while issuance
of this sector is just ¥2.4 trn/month
6) Strengthened communication with the market.
BoJ promised to increase JGB holdings by ¥50 trn/ year. JGB holdings by
domestic banks : ¥83 trn
(vs
Central Banks’ balance sheet size (vs GDP)
BoJ’s balance sheet is expected to expand from
34% of GDP (Feb.2013) to 46% of GDP (Dec.2013)
and 60% of GDP (Dec.2014).
On the other hand, the Fed’s balance sheet is
expected to expand from 20% of GDP to only 25%
of GDP by end-2013. It will most likely stay at the
same level in 2014.
60%
forecast
50%
40%
BoJ
ECB
30%
FRB
20%
BoE
10%
SNB’s balance sheet size is 86% of GDP. Foreign
currency assets consist of 87% of the SNB’s
balance sheet.
5
0%
Jan 01
Jan 03
Source: BoJ, FRB, ECB, BoE
Jan 05
Jan 07
Jan 09
Jan 11
Jan 13
7. Uncharted easing-expansion of CB’s balance sheet
Is BoJ still behind? – CB’s balance sheet comparison
JAPAN'S ABENOMICS AND ITS IMPLICATION ON ASIAN ECONOMY
According to regression analysis, USD/JPY tends to
appreciate 5% for every 10% expansion of the BoJ
balance sheet versus the Fed.
forecast
Jan. 2001=100, for BoE, May 2006=100
700
600
Assuming that the market starts pricing in a yearly 30%
point faster expansion of the BoJ balance sheet versus
the Fed balance sheet (which should be realized by
end-2014), USD/JPY should appreciate to 104.
500
EUR/JPY tends to appreciate 1.5% for every 5%
expansion of the BoJ balance sheet vs ECB. It
suggests that EUR/JPY will reach 140 by early-2014.
100
BoJ
400
ECB
300
FRB
BoE
200
0
Jan-01
Jan-03
Jan-05
Jan-07
Jan-09
Jan-11
Jan-13
Source: BoJ, FRB, ECB, BoE
Difference in the pace of B/S expansion between BoJ and ECB
30%
20%
forecast
BoJ's B/S oya - ECB's B/S oya
Difference in the pace of B/S expansion between BoJ and FRB
35%
60%
BoJ's B/S oya - Fed's B/S oya
forecast
25%
40%
USD/JPY, oya
10%
20%
15%
0%
0%
5%
-20%
-5%
-40%
-15%
-60%
-25%
Jan 10 Jul 10 Jan 11 Jul 11 Jan 12 Jul 12 Jan 13 Jul 13 Jan 14 Jul 14
-10%
-20%
EUR/JPY, oya
-30%
Jan 09 Jul 09 Jan 10 Jul 10 Jan 11 Jul 11 Jan 12 Jul 12 Jan 13 Jul 13 Jan 14 Jul 14
Source: BoJ, ECB
Source: BoJ, FRB,
6
8. Uncharted easing-expansion of the monetary base
In the longer-run, the correlation between the
relative size of the monetary base and USD/JPY has
not been strong.
JAPAN'S ABENOMICS AND ITS IMPLICATION ON ASIAN ECONOMY
USD/JPY did not react to Japan’s monetary base
expansion between 2001 and 2006 under BoJ’s QE.
Relative size of the monetary base and USD/JPY
130
160
120
140
100
130
90
BoJ will expand the monetary base to ¥200 trillion
by end-2013 and to ¥270 trillion by end-2014.
forecast
110
70
Expansion of the monetary base is not a significant
factor for the future path of the JPY, but is still
probably somewhat negative for the currency.
There is no correlation between monetary base and inflation rate
%
100
Japan CPI, oya
Japan monetary base / US monetary
base (Jan. 2000=100)
50
90
80
40
30
Jan 00
Jan 02
Source: BoJ, FRB,
70
Jan 04
Jan 06
Jan 08
Jan 10
Jan 12
Jan 14
Difference in monetary policy increase and USD/JPY
%
Japan monetary base, oya
120
80
60
50
150
USD/JPY
110
% points
5
40
4
30
2
10
1
0
0
-10
-1
-20
-2
-30
Jan-90 Jan-92 Jan-94 Jan-96 Jan-98 Jan-00 Jan-02 Jan-04 Jan-06 Jan-08 Jan-10 Jan-12
-3
30
3
20
%
30
USD/JPY, oya
20
10
10
0
0
-10
-10
Japan monetary base, oya
- US monetary base, oya
-20
-30
Jan 00
Source: BoJ, Ministry of Internal Affairs and Communications
-20
-30
Jan 02
Source: BoJ, FRB,
7
20
Jan 04
Jan 06
Jan 08
Jan 10
Jan 12
9. First ignition point of BoJ’s monetary policy : inflation expectation
Since Japan’s inflation expectation heightened significantly, JPY real yield declined significantly.
As a result, real yield differential between USD and JPY shrank significantly.
JAPAN'S ABENOMICS AND ITS IMPLICATION ON ASIAN ECONOMY
0
bp
100
-20
US-JP real yield differential
(using 5yr BEI)
-40
USD/JPY
95
-60
90
-80
85
-100
-120
80
-140
75
-160
-180
70
Jul-09
Jan-10
Jul-10
Jan-11
Jul-11
Source: Bloomberg
8
Jan-12
Jul-12
Jan-13
10. Stock indices since 2009
Jan. 2009=100
210
190
JAPAN'S ABENOMICS AND ITS IMPLICATION ON ASIAN ECONOMY
Nikkei
170
NY Dow
DAX
150
Hang Seng
Shanghai
130
KOSPI
Taiwan
110
Sensex
90
70
Jan-09
Jul-09
Jan-10
Jul-10
Jan-11
Jul-11
Source: Bloomberg
9
Jan-12
Jul-12
Jan-13
11. J.P. Morgan Forecast
GDP forecast
Q2 / 2 0 1 3
Q3 / 2 0 1 3
Q4 / 2 0 1 3
Q1 / 2 0 1 4
Japan
2.2
3.2
2.5
2.9
3.4
China
6.4
8.2
8.0
8.0
8.0
Korea
JAPAN'S ABENOMICS AND ITS IMPLICATION ON ASIAN ECONOMY
Q1 / 2 0 1 3
3.1
2.9
4.5
4.2
4.0
India
6.4
6.5
5.3
3.6
7.6
Taiwan
4.0
4.0
4.2
4.3
3.4
Thailand
4.5
4.5
5.0
5.0
4.5
Indonesia
5.0
6.0
6.0
5.5
5.5
Malaysia
4.7
4.5
5.4
5.4
6.3
Philippines
4.5
4.9
5.3
5.3
5.3
Singapore
-1.2
8.7
6.1
4.9
0.8
United States
3.1
1.5
2.0
2.5
2.0
Euro area
-0.5
-0.5
0.5
1.0
1.5
UK
-0.5
1.0
1.5
2.0
2.0
Global
2.3
2.7
3.0
3.2
3.3
Developed
1.4
1.1
1.6
2.0
2.1
Emerging
4.0
5.7
5.7
5.3
5.5
Source: J.P.Morgan
10
12. Japan’s Import by countries (2012 data)
Japan’s Import by countries (¥trillion , % share)
Japan’s Import by countries in Asia (¥trillion , % share)
JAPAN'S ABENOMICS AND ITS IMPLICATION ON ASIAN ECONOMY
Russia Others
3.8
1.7
5%
3%
Singapore
0.7
2%
Middle East
13.5
19%
Philippines
0.7
3%
Vietnam
1.2
4%
Asia
31.3
44%
EU
6.6
9%
Central and
South
America
2.8
4%
India
0.6
2%
Others
4.6
15%
China
15.0
48%
Indonesia
2.6
8%
United
States
6.1
9%
Malaysia
2.6
8%
Oceania
4.9
7%
Source: Ministry of Finance, Japan
11
Korea
3.2
10%
13. Exports to Japan
Emerging Asia: share of exports to Japan
% of total exports, 2012 data
JAPAN'S ABENOMICS AND ITS IMPLICATION ON ASIAN ECONOMY
20
15
10
5
0
PH
ID
MY
TH
CN
KR
Source: J.P.Morgan
12
TW
SG
HK
IN
14. Second ignition point of BoJ’s monetary policy : sharp decline of long-term yield
%
%
0.9
2.2
0.85
2
JAPAN'S ABENOMICS AND ITS IMPLICATION ON ASIAN ECONOMY
0.8
0.75
1.8
0.7
0.65
1.6
JGB 20yr yield
JGB 10yr yield
0.6
1.4
0.55
0.5
1.2
0.45
0.4
Aug-12
1
Sep-12
Oct-12
Nov-12
Dec-12
Jan-13
Source: J.P.Morgan
13
Feb-13
Mar-13
Apr-13
15. Lower long-term yield may stimulates Japanese overseas investment
Japanese households still hold 55% of their financial assets in Cash/Deposit
JAPAN'S ABENOMICS AND ITS IMPLICATION ON ASIAN ECONOMY
Japanese institutional investors such as Life insurance companies and Pension funds may invest more in
Emerging market bonds/stocks.
Financial assets held by each investor (as of end-2012)
JPY trillion
Banks
Life insurance
Pension funds
Households
Cash/Deposit
199
3
10
854
Loan
667
45
7
0
JGB/Tbills
360
148
97
24
Municipal bonds
32
15
9
1
Corporate bonds
33
10
11
3
Stocks
17
12
31
62
Investment Trusts
7
15
7
61
Foreign securities
77
45
60
10
244
28
69
530
1,637
319
302
1,547
Others
Total Assets
Source: BoJ
14
16. Capital flows from Japan
Japan: net portfolio outflows in bonds and notes
US$bn, 2012, by recipient country
JAPAN'S ABENOMICS AND ITS IMPLICATION ON ASIAN ECONOMY
3.0
2.5
2.0
1.5
1.0
0.5
0.0
-0.5
KR
ID
SG
MY
HK
TH
Source: BoJ
15
PH
CN
TW
VN
IN
17. Japan’s Foreign Direct Investment
end-2005 (JPY trn)
end-2011 (JPY trn)
Change between 05 and 11
(amount)
Change between 05 and 11
(%)
JAPAN'S ABENOMICS AND ITS IMPLICATION ON ASIAN ECONOMY
NonNonManufa
Manufa
Manufa
NonManufa
NonTotal
manufa Total
manufa Total
Total
cturing
cturing
cturing manufacturing
cturing manufacturing
cturing
cturing
Asia
10.4
7.3
3.0
20.0
12.8
7.2
9.6
5.5
4.1
93
75
136
North America
18.3
11.9
6.4
22.2
10.0
12.2
3.8
-2.0
5.8
21
-17
91
LATAM
3.9
1.0
2.9
9.5
1.9
7.6
5.6
0.9
4.7
144
92
161
Oceania
1.5
0.5
1.1
4.2
1.3
2.9
2.7
0.8
1.9
176
169
178
Europe
Others
11.1
0.4
6.3
0.3
4.7
0.1
17.9
1.0
9.6
0.5
8.4
0.6
6.8
0.7
3.2
0.2
3.6
0.5
62
193
51
70
77
557
Total
45.6
27.3
18.3
74.8
35.9
38.9
29.2
8.6
20.6
64
32
113
Source: BoJ
16
18. Japan’s Foreign Direct Investment to Asia
end-2005 (JPY trn)
JAPAN'S ABENOMICS AND ITS IMPLICATION ON ASIAN ECONOMY
Total
NonManufact manufact
uring
uring
Change between 05 and 11 Change between 05 and 11
(amount)
(% )
end-2011 (JPY trn)
Total
NonManufact manufact
uring
uring
Total
NonManufact manufact
uring
uring
Total
NonManufact manufact
uring
uring
China
2.9
2.2
0.7
6.5
4.8
1.7
3.6
2.6
1.0
123
116
147
HK
0.8
0.2
0.6
1.3
0.4
0.9
0.5
0.2
0.4
68
72
67
Taiwan
0.7
0.5
0.2
0.9
0.6
0.3
0.2
0.1
0.1
31
21
59
Korea
1.0
0.5
0.4
1.4
0.8
0.6
0.4
0.3
0.2
44
49
37
Singapore
1.4
0.9
0.5
2.5
1.0
1.4
1.1
0.1
1.0
77
13
200
Thailand
1.4
1.0
0.3
2.7
2.0
0.8
1.4
0.9
0.4
99
90
125
Indonesia
0.9
0.8
0.1
1.2
0.8
0.4
0.3
0.1
0.3
36
7
191
Malaysia
0.6
0.4
0.1
0.9
0.6
0.2
0.3
0.2
0.1
54
45
89
Philippines
0.4
0.3
0.1
0.8
0.5
0.3
0.4
0.2
0.2
93
52
253
India
0.2
0.2
0.0
1.2
0.8
0.4
1.0
0.6
0.4
465
312
1716
Source: BoJ
17
19. Within Global Emerging Markets, Asia dominates; within EM Asia, China dominates
Global GDP (Emerging Markets)
Emerging
Europe
EM Asia GDP
Africa and
Middle East
Emerging Asia,
ex-China and India
JAPAN'S ABENOMICS AND ITS IMPLICATION ON ASIAN ECONOMY
Latin America
TH
TW
MY
PH
SGHK
China
ID
Emerging
Asia
KR
India
Source: J.P.Morgan
Using simple GDP weights, EM Asia makes up more than 50% of Global Emerging Markets. The
skew in favor of Asia, compared to Latin America and EMEA, is even larger using purchasing
power parity measures of GDP
Within EM Asia, China and India alone made up over 70% of 2012 GDP (again, this share grows
if PPP is used)
18
20. Outlooks for China & India central to our global growth forecast
China alone, on our forecast, will have accounted for 35-40% of global growth from 2011-2013
Contribution to global nominal GDP growth
JAPAN'S ABENOMICS AND ITS IMPLICATION ON ASIAN ECONOMY
% , USD terms
40
China
US
20
0
India
Brazil
-20
02
04
06
08
Source: J.P.Morgan
19
10
12
21. China & India tend to be less volatile; GDP growth in rest of EM Asia more
cyclical and sensitive to DM demand
EM Asia projected to grow 6.7% in 2013, with broad based gains across the region
EM Asia: real GDP
%-ch over 1 quarter, saar
JAPAN'S ABENOMICS AND ITS IMPLICATION ON ASIAN ECONOMY
12
10
China
8
India
6
4
2
EM Asia ex-China,
India & Thailand
EM Asia
ex-China & India
0
-2
2010
2011
2012
Source: J.P.Morgan
20
2013
22. Despite soft tech exports – domestic demand has been firm in ASEAN
ASEAN’s have seen greatest reliance on domestic demand in 2012 – teeing up for 2013
Emerging Asia: domestic demand and global PMI
%-pt contribution to %oya GDP growth
Index, sa
JAPAN'S ABENOMICS AND ITS IMPLICATION ON ASIAN ECONOMY
8
60
6
4
55
2
0
50
-2
ASEAN ex ID
-4
Global PMI
KR and TW
45
-6
-8
40
03
05
07
09
Source: J.P.Morgan
21
11
23. ASEAN has seen a clear increase in domestic demand
Investment outlays rising in ASEAN, less so in North Asia
Emerging Asia: shifts in domestic demand
% GDP, 2012 less 2010
JAPAN'S ABENOMICS AND ITS IMPLICATION ON ASIAN ECONOMY
6
Investment
3
0
Consumption
-3
MY
TH
SG
PH
Source: J.P.Morgan
22
ID
TW
KR
24. Fixed investment – different strokes for different strokes
Investment outlays rising in ASEAN, less so in North Asia
Emerging Asia: shifts in domestic fixed asset investment
% GDP, 2012 less 2010
JAPAN'S ABENOMICS AND ITS IMPLICATION ON ASIAN ECONOMY
4
3
Transport
2
1
0
-1
-2
Construction
Machinery
-3
MY
TH
SG
ID
Source: J.P.Morgan
23
PH
TW
KR
25. Strong fixed investment rise in ASEAN – less so in Japan, Korea and Taiwan
Promise in the Philippines
Secular decline continues
Japan and Korea: fixed investment
Philippines and Taiwan: fixed investment
% GDP, sa, both scales
% GDP, sa, both scales
32
Korea
24
26
Taiwan
Philippines
30
24
28
22
JAPAN'S ABENOMICS AND ITS IMPLICATION ON ASIAN ECONOMY
35
28
30
26
25
22
26
20
24
00
02
04
06
08
10
18
22
18
20
20
Japan
16
12
15
10
00
02
04
06
Indonesia rising as India slows
12
Malaysia and Thailand: fixed investment
% GDP, sa, both scales
10
Rip-roaring in Malaysia
India and Indonesia: fixed investment
08
% GDP, sa
36
26
28
34
32
26
24
India
Malaysia
24
30
22
28
22
26
20
20
Indonesia
24
Thailand
22
18
00
02
Source: J.P.Morgan
04
06
08
10
18
12
00
24
02
04
06
08
10
12
26. Indicators also suggest dichotomy in domestic demand
Leading to narrowing in trade balance in ASEAN
Capital goods demand has surged in ASEAN
EM Asia: capital goods imports
Emerging Asia: trade balance
Index 2005=100, sa, 3mma
US$ bn, 3mma, sa
250
12
ASEAN
10
200
8
6
150
JAPAN'S ABENOMICS AND ITS IMPLICATION ON ASIAN ECONOMY
ASEAN
4
Korea
and Taiwan
100
2
Korea and Taiwan
0
-2
50
00
02
04
06
08
10
00
12
02
04
06
08
10
12
Indonesia is the ASEAN leader
North Asia has seen a slowing in investment imports since
4Q11
ASEAN: capital goods imports
ASEAN has seen the opposite
Index 2005=100, sa, 3mma
600
Suggests that commodity income effects and other factors
could be at play
ID
500
Overall credit has risen notably in ASEAN relative to North Asia
400
TH
300
This is a relatively recent dynamic fuelled by
200
1. Rising credit
MY
100
2. Fiscal impulse
PH
0
3. Rising incomes
00
25
Source: J.P.Morgan
02
04
06
08
10
12
27. ASEAN has seen a clear increase in consumer durables as well
Striking rise in car sales in Indonesia and Thailand
Asia: motor vehicle sales
% change, 4Q12 from 4Q10
JAPAN'S ABENOMICS AND ITS IMPLICATION ON ASIAN ECONOMY
100
75
50
25
0
-25
TH
ID
JP
IN
PH
Source: J.P.Morgan
26
CN
MY
KR
TW
SG
28. EM Asia central banks easing only a drip feed
Compared to other parts of the world, EM Asia slow
to cut policy rates in 2011 & 2012, and this will
continue in 2013
EM Asia slow to cut rates
Global policy rates
Change from pre-Lehman peak, bp
JAPAN'S ABENOMICS AND ITS IMPLICATION ON ASIAN ECONOMY
EM Asia has a range of other tools available,
including fiscal policy, so rate cuts have not been the
focus
0
-100
In 2012, for EM Asia region as a whole, policy rates
cut only 49bp
-200
In 2013, trickle of rate cuts to almost stop
completely. Only countries where rate cuts are
expected are India and Korea
EM Asia
-400
-300
DM
EMEA
-500
-600
Latam
2008
2009
2010
2011
2012
2013
2011
Official interest rates, % p.a., end-period
China
1-year working capital
Hong Kong
Discount window base
Taiwan
Official discount rate
Korea
Base rate
India
Repo rate
Indonesia
BI rate
Malaysia
Overnight policy rate
Philippines
Reverse repo rate
Thailand
1-day repo rate
2012
2013
2Q12
3Q12
4Q12 Current
1Q13
2Q13
3Q13
4Q13
6.56
0.50
1.875
3.25
8.50
6.00
3.00
4.50
3.25
6.00
0.50
1.875
2.75
8.00
5.75
3.00
3.50
2.75
6.00
0.50
1.875
2.50
7.75
5.75
3.00
3.50
2.75
6.31
0.50
1.875
3.25
8.00
5.75
3.00
4.00
3.00
6.00
0.50
1.875
3.00
8.00
5.75
3.00
3.75
3.00
6.00
0.50
1.875
2.75
8.00
5.75
3.00
3.50
2.75
6.00
0.50
1.875
2.75
7.75
5.75
3.00
3.50
2.75
6.00
0.50
1.875
2.50
7.75
5.75
3.00
3.50
2.75
6.00
0.50
1.875
2.50
7.75
5.75
3.00
3.50
2.75
6.00
0.50
1.875
2.50
7.75
5.75
3.00
3.50
2.75
Source: J.P.Morgan
27
6.00
0.50
1.875
2.75
8.00
5.75
3.00
3.50
2.75
29. Disclosures
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28
30. JAPAN'S ABENOMICS AND ITS IMPLICATION ON ASIAN ECONOMY
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29